Frenzied Alibaba Group Holding Ltd IPO Marked Market Top


According to famed bond fund manager Jeffrey Gundlach and a number of other well-known and lesser-known market gurus, the frenzied Alibaba IPO a few weeks ago very likely marked the top of the current bull market.. In support of this view, since Alibaba Group Holding Ltd (NYSE:BABA) went public about a month ago (and especially in the last week), the general markets have lost all of their profits for the year.

For the record, just eight minutes after Alibaba’s September 19th initial public offering, the S&P 500 stock index reached its all-time high of 2019.26 and has been dropping ever since.

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Historical precedent

Analysts point out that this is certainly not first time a big IPO marked a top in the equity markets, and point AT&T Wireless back in 2000 or Visa Inc (NYSE:V) in 2008, both successful IPOs initially, but in retrospect we can see that both IPOs were signs that investor interest had peaked and markets were getting ready to tumble.

“History tells you that big deals tend to come during market tops,” explained Nick Colas, chief market strategist at ConvergEx. “Typically speaking, you need to see peak levels of investor interest in order to get big deals done.”

Volatility up, IPO activity down after Alibaba IPO

Another typical sign that markets are setting up for a fall is increased volatility, and the CBOE Volatility Index (a popular measure of market fear) is also up 126% since the Alibaba IPO, from under 12 to just under 27. Alibaba Group Holding Ltd (NYSE:BABA) has lost 7.3% of its value from the first day of trading.

Also of note, the near-record pace for IPOs in 2014 has slowed down dramatically. The number of IPOs this year is at the highest pace in 14 years, with a total of 241 deals adding up to $81.9 billion, according to Dealogic. That said, IPO activity is slumping dramatically in September and October, with just three new deals priced in the past week and three additional deals filed.